This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and raising children at Childwild.com.
In my article on Spotify last week, a couple of commenters took me to task for suggesting that subscribing to access for music could be better than buying your own permanent copies of the songs you love. A few thought that, as a personal-finance writer, I should be urging people to buy their stuff instead of throwing money away renting access to it.
That’s an interesting idea. I think it’s often the case that renting or subscribing for access to something is better than buying it outright. Buying stuff can be great, too. Ultimately, I don’t think the question is whether to rent or buy; it’s how to find the solution that gives you the best value for the thing you need to use. Sometimes, you’ll spend more money renting access to an item than you would just buying it outright. Other times, the reverse is true.
The rise of the transumers
Most products aren’t investments. They lose value the moment you take them home from the shop, and continue to depreciate the longer you own them and the more you use them. This is true of everything from cars to designer shoes. There are a few things that can appreciate in value: collector’s items, houses, jewelry. For most of our stuff, though, we can hope to recover some of what we spent on it by selling it when we no longer need it, but we’re kissing the bulk of our money good-bye when we make the purchase.
Given that, there are plenty of times when it makes more sense to rent. Anytime you’re buying something you have a limited use for, you might want to pause and consider renting instead. High-end designer handbags?Specialized power tools for a home improvement project? You can rent this stuff for a fraction of the cost that you’d spend buying it.
There’s a whole movement of people who call themselves “transumers”. These folks make an effort to own as little as possible, renting what they want or need and then swapping it for new rental items after a short time. They’re not crunchy hippie types: They’re young professionals renting cars and furniture — and even their clothes. They just want to always have the latest trends, so instead of buying their stuff they rent it and turn it in every few months for the hot new item.
In addition to big companies or niche websites that provide rental items to consumers, there are websites that specialize in connecting individuals who own stuff with other individuals who want to borrow it — for a fee. These are like a rental version of the swap sites I’ve written about before. Instead of trading your Stuff permanently for other Stuff you can rent it out. For example, you can rent your fall textbooks on Chegg.com. Some textbooks you may want as reference texts later on in life, but most of them you’ll never need to touch again. Maybe it makes sense to rent instead of buying them?
In some economic conditions and for certain types of investors, it even makes more economic sense to rent your primary residence rather than own it.
Rent or buy?
How can you decide whether to rent or buy? The bottom line is minimizing the expense for having the Stuff you want.
- Consider the cost. How much does the object cost to buy? How much is the rental fee? How long would you have to rent it before you’d have paid as much in rental fees as you would have to purchase it outright?
- Consider how frequently you want to use an item. Is this something you’re going to use once, like a floor sander or a formal gown? Or something you want to have on hand at all times, like a hammer or your running shoes?
- Consider how long you want to use the item. Do you want to have your residence for the next year or the next 20 years? Will you need that car for a weekend or a daily commute?
- Consider its resale value. Does this object appreciate in value, hold a fairly steady value, or rapidly lose value?
- Consider how much your use will impact the item. Some of our stuff we wear out. Some of it we leave little trace on. Are you buying a sofa that is going to be destroyed by your kids? Or a DVD that you’ll watch a few times and then re-sell good as new on eBay?
There’s no simple answer to the rent vs. buy question. For some people, it probably makes economic sense to rent furniture. They may want to change their furnishings frequently, and have a thing for high-end designer items that lose value quickly as they go out of style. Renting a couch for six months in those circumstances makes more sense than shelling out thousands of dollars for one. I, on the other hand, am happily using the couch that I received as a hand-me-down from my mom when I moved out. I expect to use until it breaks or my kids grow up, whichever comes first.
The key is to answer the questions above and figure out if it will cost you more to rent or buy the thing you want. It’s an equation you should probably be able to solve for anything you want to buy. The equation would look something like cost to buy — resale value vs total cost to rent. You’d also want to factor in maintenance costs on items you own.
What about Spotify?
To go back to the original example of music, it probably depends a lot on how you consume music. If you follow what’s hot, and tend to listen to a new artist or album for a few months and then move on to the next new thing, you’re probably better off with a subscription service. If you have a few favorite bands you want to hear over and over, you’re not spending money on new music every month. Subscribing to a music service might be a waste for you.
Aside from cost, there are psychological issues. The transumer movement has been around for awhile, but it doesn’t seem to have really caught in with most things. People seem to prefer owning stuff to renting it. For instance, I rarely rent anything. I own my home, my car, and all of the possessions I regularly use. I’m experimenting with subscription services like Netflix and Spotify for my media, but the truth is I don’t buy a lot of media anyway. I tend to use my library for books, and often get music and movies from the library too.
What about you? Do you see yourself becoming a transumer? In what situations have you found it makes more sense to rent than to buy? Or do you think that renting is always a waste?
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I remember back in 2006 when my friends were trying to talk me into buying a home. That was the peak of the market and just using common sense, everything felt over priced. I mean, a half a million dollars for a townhouse 40 miles outside of DC? Come on!
Thankfully I didn’t pull the trigger. That being said, the whole situation has sort of left me with a sour taste in my mouth with regards to home ownership.
Sure, it’s nice to have something you own and get the tax breaks, but by renting I don’t pay any personal property taxes, my insurance payments are lower, and when something breaks I call the landlord instead of my local handyman.
Sure, home ownership is for a lot of people. I’m just not one of them.
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“by renting I don’t pay any personal property taxes” – Well, yeah you probably do. You just don’t have a separate bill for them. Otherwise your landlord would be losing money. Same thing with LifeAndMyFinances’ comment about “the other costs associated with home ownership” – you are still probably covering those costs when you rent; otherwise being a landlord is a fools’ game.
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Yes, we renters realize that all these costs are covered in our rent. But one of the benefits is that aside from rent increases, our home-related expenses are fixed. Sure, my rent pays for building maintenance, but I’m not suddenly going to be out thousands of dollars if there’s a major repair. When my fridge broke down, I didn’t have to pay for a new one out of pocket.
I’m not sure how taxes work, to be honest. In Canada, we can claim rent on our income tax and get some money back. However, we can’t claim the interest on our mortgages.
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You can only claim rent on your income tax in Canada if you are very low income (and it’s a provincial credit, not federal). Income over $20,000 starts to reduce the credit rapidly in Ontario, for instance.
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@ Adam — good to know! Obviously I have someone do my taxes (that’s one thing I don’t DIY).
A condo the size of my apartment (small 2 bedroom) where I live has $1200-$1400/year in property tax. Correct me if I’m wrong, but I doubt that much of my rent is property tax.
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That’s a great point about the fact I implicitly cover things like personal property tax, the owner’s insurance, etc. But, even taking that into consideration, it’s still cheaper (for me) to rent than to own.
And, since we’re about halfway done with a lost decade, I’ll probably still be able to get that 3.75% 15-year mortgage in five years, AND the property will be selling at a 20% discount from today’s price.
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In Minnesota, depending on your income, you can actual file to get a portion of your rent back as a “property tax credit.” I actually think it’s kind of dumb (because, well, property taxes do need to get paid). But that’s how it works here.
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Property tax, etc is lumped in with your rent…you just don’t see it.
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Does it make homeowners feel better to tell renters that their property tax is included in the rent? Renters get it! We GET it! What we’re saying is it’s not a separate expense from our normal rent amount every month. No bill for thousands of dollars shows up in my mailbox. I don’t have to budget for something extra. I can understand that the tax bill is likely a thorn in your home-owning side – precisely the reason why a lot of us rent – but the condescending “Well, you know, you *are* paying tax muhahahah” is really tiring.
Sorry – rant over.
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The other line I get is “you’re just paying someone else’s mortgage, you know.” (Really? I thought the stork delivered my apartment building.)
I’d love to be able to find the numbers on how much of my rent goes towards property taxes, maintenance, mortgage, etc. to see how it would compare to a condo. It would be interesting to see where you’re paying more or less.
Another big difference is the emergency fund. I know I’ll need a big emergency reserve for home ownership than renting. That affects cash flow and returns too.
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It wasn’t meant to be snarky. And we’re renting at the moment also. But when we had a condo, we didn’t get a bill for the property tax either. It was all just lumped into our monthly payment (escrow) and the mortgage company sent the check to the county.
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Brian, I moved to the DC area in 2006, and rented until we found a house at auction (government relocation paid the previous homeowner $633k, and as the market dropped we bought six months later at $435k). The DC and Northern Virginia area has had one of the best (if not THE best) large housing markets in the country, but many people are still underwater and foreclosures are affecting the market here too.
Anyway, after living in the house for 4 years we sold for $460k (after sales costs) and have gone back to renting. Why? Reading the tea leaves, I believe the DC market is going to get hit when the government and defense contractions begin in earnest in 2012.
We’ll have to see what happens, but I didn’t want a half million dollars of my money bet on the side of increasing federal budgets.
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Many of the commenters highlighted the lived benefits of renting a dwelling.
I’d like to add this: “Home-ownership” was devised in the 30s as way for banks to generate income through loans. It was sold as the American dream. But as the Marxist-scholar, David Harvey points out, the industrialists of the time knew that “debt encumbered home-owners don’t go on strike.”
And how true, how true that is to this day.
In short, aside from the outcomes of financial downturn, mortgaged homeownership is a kind of slavery, particularly in a country with ever deteriorating labor laws (i.e., no job security) and stagnating wages since the 70s.
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Where I’m from, everyone pushes you to buy a home. “It’s better than throwing your money away in rent!” – they say.
What they don’t understand is the other costs associated with home ownership. I think I’m going to pass this article along to those special people. Thanks!
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I hear the exact same thing! Everyone is trying to pressure me into the market now while interest rates are low. The market is very different here in Canada, and it’s predicted to go down!
I don’t consider renting a waste of money — I’m getting something out of it, right? And when I’m able to save/invest that extra couple hundred dollars a month I don’t see how renting for a while long will be the financial disaster everyone thinks it is.
That being said, I’d sure like to paint the walls and the property management company is terrible at fixing non-urgent things!
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I also hate the idea that renting is “throwing away” money. Um, I have to have somewhere to live. Is buying food also throwing away money?
I got into an argument with a coworker about whether renting was better than buying. I finally conceded to her that OWNING a home is better. The problem is that most people don’t OWN anything, they’re merely renting their house from a bank.
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What you also need to consider, is that a mortgage on a similarly sized house is going to be substantially less, while you also get amenities like a yard to grow a garden, a garage, more room/bathrooms, and the ability to have updated energy efficient things.
I just got into a house after renting for 5 years out of school. I was paying 865 a month for rent, plus 145 for power, and another 50 for water/sewage. 1400 sq ft 2/2 apartment with windows from the 70′s, a fridge that was older than me, as well as the HVAC system that rivals what a caveman used.
Now? 1500 sq ft, 2 car garage, finished basement (extra 750 sqft) on .75 acres of fenced wooded back yard. I’ve got a fancy new fridge that’s energy efficient, as well as a new HVAC unit, dishwasher and stove, and windows. My mortgage? 490. My power? 85. Water (no sewage, septic) 25.
Sure I have to put in the sweat equity and make the yard look pretty on my own, buy stuff to repair the fence, paints, etc. But I’m paying less for EVERYTHING to live there, than I was paying just for rent. The apartment ended up being right around 1100 a month (rent/utilities/internet/pet fees) and I’m now paying 850 ish a month for more space, better appliances, and something that’s mine (or will be).
I loved renting because it was an easy out, you weren’t stuck there unless you just didn’t want to pay to break the lease. And yeah, the repair guy comes to fix things, but they never replace anything, you’re stuck with drafty windows and an air conditioner that was made before tv was invented. Renting is great in a given situation, but with the market right now being a buyers market, rent prices are through the roof and housing prices are low low low.
Obviously a lot of this depends on location, but in the end, you get more house for less than renting in a comparable neighborhood. And if you’re going to be living there for a while, it just doesn’t make sense to spend money on rent when you could spend it on creating your heart of a home.
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oh, without a doubt location is a lot. i’m in a land few would bother with, having spectacular weather year-round, undeniably the greatest climate ever, and very very close proximity to the world’s murder capital of juarez mexico.
for me, there is NOTHING like renting where i rent for value. my water, sewage and gas are all-inclusive. only thing i pay on top of my rent is electric. i walk everywhere. no car. it’s LOCATION/LOCATION.
i have a pool, a gym if i want one, beautiful courtyards, walking proximity to everything necessary for a happy life, and if i truly need it, a bus that comes right to my door.
i consistently check for prices of comparable homes. no way, jose. i have owned and i have rented. i have been most fortunate to buy exceedingly low and sell for a profit. once, doubling my money in two years.
no, thanks — i love renting. don’t know where you live that they don’t replace drafty windows and old appliances, but you had poor management.
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Definitely can make sense to rent rather than buy when you move around a lot, like my colleagues and I do. On one hand, it *feels* nice to have stuff that’s ours, but realistically, it can be a real pain to ship that around the world or store it back home every time. There’s a reason furnished apartments can be rented out at a premium!
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Transumerism is an interesting trend, but I think I’d rather buy a couple of quality items that last rather than always have to rent the latest purse or item of clothing. I’m just not that big into fashion or media that I need to have the latest items. I’m not judging anyone here — I’m just saying what works for me.
I’ve seen places in Canada that rent children’s toys so kids can always have something new when they get bored. When it comes to consumerism, I fail to see how it’s more than marginally better to rent new toys than buy them. We’re still training kids to want more, more, more! I don’t have kids yet, but I hope I can teach them to be creative and appreciative for what they have — and be able to say no!
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Here is a suggestion for toys when you have kids: Do a toy exchange among friends. It doesn’t cost any more than what you pay for the toys, and kids really do not need a lot of toys- just a few well-chosen items- mainly stuff they can use to make more stuff (Legos, ect.). For about a year, my son’s favorite toy was the empty diaper box: he could crawl/climb in and out of it, push it around and there was a huge picture of a baby on the box. If generous grandparents want to give a gift, ask for a zoo pass or children’s museum membership.
I also never paid retail for a toy (or clothes, furniture, accessories)- thrift stores and garage sales yield great things for kids. (I did buy the car seat and crib mattress new, though.)
And I’m with you on the few good items than renting handbags. I’d rather have less, and truly love what I own.
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Agreed
Sharing, swapping and hand-me-downs were the norm for me and my siblings. My parents and grandparents also made things for us like a set of blocks and a rocking horse. My parents favoured toys like legos, blocks and the sandbox which allowed us to be creative.
We were also encouraged to play outside a lot, and you don’t need a lot of new toys for that
A few balls or a badminton set for the summer, and a decent snow suit for the winter!
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Muhahahaha! That’s what I thought before I had kids too!
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I am not a music person but the free version of pandora and NPR meet my needs just fine. I bought a new car with satellite radio and I just don’t get why I would pay for it after the free period ends. I like streaming Netflix and probably will never buy a DVD again except kids classics from Disney. Having said all that I have always been a homeowner and enjoy owning nice quality stuff. None of it is trendy but neither am I.
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Satellite radio is *so* worth the $12/month just so that I don’t have to listen to the ridiculously annoying “SUNDAY, SUNDAY, SUNDAY!” style commercials. Honestly I would not buy another car that did not come with it just for that reason.
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I actually get *very* annoyed now on the rare occasion when I have to switch over to a local FM station (for an imminent traffic or weather event) and a commercial comes on!
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I’m getting satellite radio for about $4 a month. When my free subscription ran out on my new vehicle, I didn’t resubscribe for several weeks. The offers to resubscribe kept getting better and better, until they hit a number I was willing to spend. When my current subscription runs out (1 year), I’ll do the same again and see what I can get next time around.
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My husband actually made our bed frame, so we bought the two power tools necessary to build it because we figured he would be making more things around the home, so why rent? Well, 8 years later, he has not made another thing and the tools are collecting dust. I definitely wish we would have rented them for the two or three days it took to make the bed frame.
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We live in the UK and use LOVEFILM (like netflix) to rent dvds and stream films online. It makes sense for us because one months rental is the same as say, one new release DVD or a couple of old DVDs, and we will watch on average 8 films a month for our £15. (The public library is more expensive).
The main attraction for us is precisely NOT owning the disc – apart from a few favourites we watch again and again, most films are only good for a couple of goes. We also enjoy watching a mixture of classics and new releases.
We still have a fairly large DVD collection which looks nice on the shelves and can be raided for old faves, but we dont need to find house-room for mor just so that we can watch them.
We added on laystation game rental when we got a PS3, and that is a great idea for trying out games before you buy them. We cancelled that add-on because we tend to only play one game at a time, but it saved us from buying a few lemons!
We’ve had spotify for years, but the free service not the subscription. I consume music a different way to films, I listen to the same stuff over and over again so subscribing to music would’nt make sense for me.
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I agree with Beth; while transumerism is a great idea, there are certain things, even though they depreciate in value, I’d rather buy than rent. For instance, my car. If you lease a car, you’re ALWAYS making payments on it; NO FUN. I buy “pre-owned” premium cars and keep them in good shape and keep them FOREVER. It is far less expensive than renting. Yes, the downside is if you like a new car every three years, this doesn’t work. But think of all the money that could be in your bank account if you hadn’t gone out and leased a new vehicle every other year. You don’t have the money and you don’t have anything to show for it either.
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But leasing a car isn’t the same as renting a car or having a Zipcar membership.
I live in a city with good public transportation so I don’t need a car on a day to day basis. Sometimes, however, I’ll rent a car for the day or weekend if I need to run a bunch of errands or travel to the burbs for something. A hundred bucks 3 or 4 times a year is a lot less expensive that buying or leasing a car and paying for insurance, taxes, maintenance, and parking.
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I think it all depends on your interests. I’m not big into fashion or media — that’s just a personal preference — so it doesn’t make sense to rent something I don’t need in the first place. (Though I’d love to be able to rent special occasion clothes!) For someone who’s into fashion, renting can be a deal.
Over the years, renting has allowed me to do a lot of things I wouldn’t have otherwise — like renting sports equipment for a day (bowling shoes, skis, roller skates, etc). Renting a van for the occasional big purchase is cheaper than owning one, and renting a hotel room for the occasional overflow guests is cheaper than owning a bigger home.
I think it’s all what works best for the person, and it’s great to have options.
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http://www.renttherunway.com/referral/dcbanks
For special occasion rentals (evening dresses and etc)
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Great post Sierra! I completely agree with you that owning something is a psychological issue. It would be much cheaper for Bacon Boy and I to rent a house, but we’ve bought in to the ‘great Australian dream’ of owning our own home.
In addition, we’ve rented two separate places where the investor/owner has sold to a new owner who has decided to move in to the house, and as a tennant we have been forced to move from a place we loved. As a result, we want to purchase our own house where we know we can stay as long as we want, and have as many pets as we like! Definitely an emotional than strategic/financial decision. We’re looking to buy a house in the next 12 months, mainly to give us peace of mind!
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I’m in Australia too, and just bought my own place. I love that I will not get a notice telling me I need to move again. I found that even with rentals, you end up spending money on things to make the place more usable or liveable (ie. perhaps pantry containers that are just the right size for the shelves, or a set of shelves that fits into a particular nook) – and then you move, and have to start all those small things again.
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Interesting concept! The people on the other end of that arrangement (the rentee?) is taking advantage of depreciating assets by loaning an item many times, making up for the original cost.
Reading this article made me think about why I think Spotify is dumb but streaming Netflix is cool. Both are clearly rental services, but I could justify using Netflix to replace cable ( because without a good antennae option, everyone is just “renting” television programming, right?). Whereas I am satisfied with my local radio stations and I’m not attached at the hip to my mp3 player, so Spotify is not that interesting to me.
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I have cousins who rent their party dresses for fancy occassions. I actually think that is a pretty good idea, if the thought of used clothing doesn’t make you squemish.
It also wouldn’t be a bad idea to rent a high end bag for awhile – it might even help you make a decision as to whether shelling out a thousand dollars for a purse is something that would be valuable or a waste of money in the end.
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Buying DVD’s or Blu Rays new or used, then reselling works very well for me (here in the UK) to access series shown exclusively on satellite TV. That way, we watch what we want, when we want, without the adverts.
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I’m a “transumer” for things like Netflix and Pandora. We love film/TV and music but don’t enjoy the clutter of having loads of DVDs and CDs around, so it makes sense for us to pay a subscription fee. I also use the library for about 80% of my books- I read at least four books a week, so this saves a lot of money. If I’m checking out a book more than twice, I’ll buy a copy. I have an e-reader that I use for travel and load it up with e-books from the library, free books from the website, or use GCs that I get as gifts.
I don’t mind paying for a high-speed internet connection and for Netflix. It’s one-third of the price of cable. And I don’t feel pressured to watch TV all the time because I’m paying for cable.
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Thanks for bringing up the library as a good source of (free!) media. The provincial and municipal libraries here in Montreal have huge CD and DVD collections. It definitely makes more sense to wait a bit for TV shows and movies to come out on DVD than it does to pay for them or to subscribe to Netflix. OK, so I’ve been waiting for over a month to watch Season 3 of True Blood, but in the meantime, I’ve watched all of Extras and United States of Tara. That’s quality TV that I haven’t paid a cent for!
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There is a cost of owning “stuff” way past the purchase price. The time and money required to maintain “stuff” can be significant and unrewarding. Most “Stuff” also requires space and figures into our housing requirements.
Rent things you use infrequently to avoid these additional costs.
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The NY Times has a great calculator on this question:
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
Personally, I own my home (along with the bank, of course, but I am almost finished with them). I kinda like it. It is tethering however, cannot just pick up and leave on short notice. Kinda like being married
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You can rent jewelry as well, especially from bridal boutiques for special occasions. Jewelry is not normally a great investment either. Even with the price of gold going up, finding a buyer to pay more than what you purchased it for, let alone more, is nearly impossible. The markup on jewelry is so high that just to break even would mean you would have to either have a rare antique piece or have purchased gold at a record low and sold at a record high.
I love borrowing and lending things, it’s my version of renting. Although there are some pitfalls to watch out for such as the care that other people give to your items when using them, I believe there is little reason to own a tool for everything, a purse for every outfit, and even an expensive business suit to wear on rare occasions. I lend freely and hope my friends and family care for my things as much as I do, and that they may someday have something I need to borrow.
Great post! I hope society gets away from the need to own EVERYTHING.
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I would totally rent jewelry for a special occasion. I don’t like wearing fine jewelry or keeping it around the house — too afraid of losing or damaging it!
Much of the cost is in the design, or the designer label, not the raw materials. It doesn’t matter if gold is high — gold jewelry isn’t pure gold anyways.
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I think Ramit did a study along these lines a few years back. He showed how renting over a 30 year span and investing excess money will yield a greater return than if you purchased a home.
Now, every situation is different, but if my money is going to grow faster in the market than if I purchase the house – then I’m going to be a permanent renter.
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Most people won’t invest the extra money, though. They will use it to pay for a more lavish lifestyle, and have nothing to show for it in 20 or 30 years. Buying a home is a good idea for a lot of people because it’s a forced investment.
If you can be disciplined enough to invest the extra, great. But I think most people lack the discipline.
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Investing what excess money though? If I were renting, my rent would be about 50% higher than my mortgage payments are currently (although they’re lower than they were a couple of years ago thanks remortgaging to a tracker rate just before the base rate went through the floor). Previously, when we were renting, we never rented anywhere that would’ve been cheaper to rent than buy.
At the moment, we’ saving all the extra money I’m not we’re spending renting, so that when rates go up, we can pay off a big chunk of the mortgage in one go, since our savings interest is a higher rate than our mortgage interest.
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The difference is that you’re relying on outside factors (the markets and rent inflation) over which you have zero control. Whereas you are nearly 100% in control of how/when you pay off your house. If I make my fixed payments on time for 15 years, at the end I will have a paid off house. Whereas if you rent for 15 years and invest the difference, you have less control over what portion of your total budget goes to rent versus investments (because rent typically goes up) and what return your investments will get. You might come out ahead of me, you might not. If you’re willing to take that gamble, that’s perfectly fine. I’ll stick with the known knowns.
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Good points! But the way I see it, home owners can’t control the housing market either. There are going to be ups and downs whether my money is in the markets or in a property. Our housing bubble hasn’t burst yet, so I’m playing “wait and see”.
I wish I could buy a place that would last me until retirement, but that’s not affordable on one income. My fear is buying a place and having it go down in value before I need to “trade up” (if the husband and kids every come along, that is!)
In the meantime, I could invest in the market while stocks are cheap…
You see my dilemma
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The value to me is not as much in having an appreciated property as it is in not having a mortgage payment. So I guess the appropriate comparison would be whether or not someone could rent, invest the difference while I pay off my mortgage, and when my house is fully paid off would they be able to buy an equivalent house outright? Because then they’re also subjected to the third and fourth unknowns of future housing values and future mortgage rates.
Renting makes sense for us now (the next 3-5 years). It won’t make sense for us long term (20+).
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That type of calculation relies totally on assumptions. A tweak of assumptions can really skew the results, so take market conditions into account, but don’t think a spreadsheet like that provides *proof* of much of anything.
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Why do some many people automatically assume that renting anything is throwing away money? I think that buying a lot of things is throwing away money. Why would I want to buy power tools if I’m only going to use them a handful of times? Why would I want to own a car in a city if I can walk everywhere and use Zipcar for the few trips a month that I need it?
I love renting on so many levels. I don’t have to care for things the same way. I can get easier and cheaper access to the latest and greatest things, and I can easily move on from something when it’s no longer valuable to me.
I don’t think “rent vs. own” is by any means all-or-nothing on either side of the argument, but I’m certain that people out there that are insistent on owning everything are throwing money away.
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Zipcar is a great example! I’m excited that my city is finally getting a bike share program. Owning a bike isn’t practical for me, but I would gladly pay to have access to one. (Especially when i don’t have to store or or maintain it!)
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Beth – bike sharing is awesome. I live in Minneapolis and we’ve had one for 2 years and I just love it. I have an annual subscription and have ridden over 400 miles since April (this is the first year I’ve been a subscriber.)I have a station near my apartment and near most places I go to frequently. I’m much more active and have even lost a few pounds. Hopefully you’ll love it as much as I do.
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I find it interesting that the idea of subscribing to music should be so weird to people. We already do that with cable and, more recently, things like Hulu and Netflix. And for most of these, it’s much cheaper to pay every month and check out everything they have (and if you really, really like a show get the DVDs) than it would be to get the DVDs for every show you want to check out and then resell those you didn’t like (or didn’t like enough to watch them again).
On thing I did… it’s not exactly the same but it’s kind of close. For years I didn’t have a cellphone. I would use a phonebooth if I needed to make a call (my landline was included in my Internet plan so I had free phone from home).
I spent maybe 5 bucks a year on phone. If I was using one all the time, it would have been cheaper for me to spend money every month, but in this case I was saving. I realise a phone plan is still a subscription, but that seemed like a similar enough situation to mention here.
Now I’m looking for a job so I bought a cellphone, but without a plan, only to receive calls (which is always free in France). I had to pay more for the phone than the 1€ it costs with a plan, but over the long run it has cost me less because I don’t have a plan to pay, and it has proved useful for people to reach me.
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I find that renting rather than buying is excellent for the space saving as much as anything else. Since I started using Spotify, for example, I’ve added over a thousand tracks to my collection, and on top of the fact that that works out at more money than I have if I buy the CDs, it also works out at 50-100 CDs. Some things I like to collect – box sets of DVDs look great on the shelf, books I prefer to have in paper form and I collect sets, computer games also get stacked up in their cases in a row – but by renting my music I can save the space for those and still get the wide variety of music I’ve got used to.
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Renting a tuxedo makes more sense for me because I only wear one occasionally. I would rather buy one because it would fit better, but it makes no sense financially.
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“Transumer?”
Thus does the English language die, bit by bit–
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Actually, that’s how English stays alive: it evolves over time to include new words and make others archaic, just as it always has.
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I’ve used a music subscription service (Rhapsody, $10/month – it’s a lot like Spotify) for over a year now. I signed up for it when traveling, and I enjoyed it so much I’ve kept it up.
I love listening to new music across many genres, and going back to old favorites once in a while too. I work from home and play Rhapsody about 20 – 30 hours per week.
Listening to new music (probably 2-3 new bands per week) to suit my mood and task keeps me alert and energized during the work day. The cost is much less than buying that much new music, I don’t have to store anything (not even files on a hard drive, like iTunes), and the risk in trying something new is basically nonexistent – if after a few songs I don’t like a record, I never have to hear it again. But if I do like a record, I can enjoy it as many times as I want, listen to other work by the same artist, and so on. Thus, I am *much* more adventuresome and eclectic in my Rhapsody listening habits than I would be if I were buying CDs or songs on iTunes.
To me that’s the biggest advantage to a music subscription service; it’s opened my horizons and enriched my life. Free Pandora with ads is great for finding new bands and genres, but I like being able to choose what to play next, set up playlists, not hear ads, etc.
Delving into new music has become a great new hobby that I never would have gotten into had it not been for subscription services.
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There’s an added cost to ownership of consumer products besides the price at the register.
Everything you own needs SPACE. You pay extra for the square footage, shelves, boxes and other furniture to organize your stuff. There are businesses devoted to the sole purpose of managing your stuff, like storage rental units when you run out of space at home, or retailers like The Container Store that offer 50 types of clothes hangers.
The smallest storage space I can find in my area will set you back about $40 a month, with insurance required– if you don’t have a policy they will sell you a crappy one for $10 per month. That’s $600 a year just to keep stuff *you don’t use.* Hmmm….
And if you purchase a home– how much of the price is for storage features like cabinets, large closets, basements, additional rooms, oversized garages, etc?
On top of that– the time and money you spend cleaning and maintaining a large building adds up. My wife and I lived in a 3-bedroom house for a while, and she couldn’t stop cleaning every day– so I had to help even though I hate cleaning. Plus the yard monstrosity that required maintenance was a headache (who has time for this?).
We got rid of a ton of junk (literally, a ton– maybe two) and moved to a one bedroom apartment: now the whole place can be dusted, vacuumed and mopped in less than an hour. Result: we now spend a lot more time doing things we like, and less on chores.
Yes, living under capitalism we all have fetishistic tendencies, and most of us will hoard and display possessions tied to our “identity” and status or whatever; but at least let’s be conscious about what we’re doing and why.
I still buy books and CDs and records (lovely lovely records): I’m not crazy about the Kindle, vinyl records are gorgeous, and MP3s sound like crap to my ears. Maybe some day I’ll get rid of these magical objects, or trade them for their digital versions, or maybe I’ll just keep paying the extra real estate cost to enjoy them for the rest of my life.
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Considering my current appartment situation.
I did buy it and am now paying 1320 € mortage (with fixed %).
The exact same appartment in the neighbour house gets rented for 1300 € without utilities.
I do not plan to move anytime soon. I got a very secure job.
Even with a possible wife and child in the future the appartment is still good enough.
So in my situation I don’t see why I should rent.
If after 10-15 or more years I plan to move I just sell the appartment and after paying the maybe remaining mortage I have certainly alot of money left.
I don’t think I can “earn” the same money when investing the difference I’d have when renting.
It greatly depends on your situation.
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All of us have limited resources and how we deploy those resources matters so much. While it may not make much difference in music or movies, because for most of us the “investment” of capital isn’t a significant portion of our resources, it makes a huge difference when it comes to big ticket items such as cars and homes. Simply put, do you want to invest your capital, assuming you have it, into a downpayment for a car or house. This is less a lifestyle question than an investment question. If you tie up capital in a car or house, what opportunity costs are lost? While I am a long time homeowner and car owner, I recognize that for many, investing in illiquid assets such as these does not make sense from a financial point of view. In these uncertain times, it is more important than ever to have liquid assets so that you are not forced to sell an asset until the time is right. Currently I am not paying down debt as quickly as I otherwise might because I am ratholing every spare cent into my money market account with the goal of having a year’s living expenses in the bank in short order.
Second point, for many, especially those starting out and the economically disadvantaged, renting or leasing is the only available option because they don’t have the capital to spend. Oh, how the financial folks take advantage of these people, making it harder than ever for them to get ahead.
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I’m surprised that more people don’t rent their bridal gown. Guys rent their tux, right? It can cost thousands of dollars, you only wear it once and then you have to figure out where to store it.
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It’s all perception. I tried to find a place that would rent a gown, or take my gown back and rent it after I got married in mine, and I got sneered at by every salesperson. “Why don’t do THAT sort of thing here”.
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It can be hard to get one to fit you properly though if you rent – that’s why I bought mine, so I could get it altered (and it was on 70% off sale!). I’ve since sold it on to someone else too.
I know my mum rented her wedding dress, while my dad already owned his suit (morning dress – I’m in the UK), because he needed it to wear for work.
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You do realize that you still get fitted for rented wedding dresses, right? They alter it to fit you.
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I feel really lucky because I am borrowing my wedding dress. I paid $40 for the gal to ship it to me. When I’m done with it, I’ll have to pay to have it cleaned, and then I will send it on to another lucky lady. I really like the dress, it fits well, and I’m excited to be able to pass it on. Sure, I may have loved another dress more . . . but this one is pretty awesome with great savings to boot.
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That’s awesome! If I have to buy a dress someday, I’d love for it to be worn and enjoyed by others.
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I should have mentioned this before . . .
I found my dress via the Sisterhood of the Traveling Dress on the wedding website A Practical Wedding. It’s been featured here before. Great website about prioritizing what you want in your wedding and making sure now to get caught up in expectations.
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Re: music.
To me, Spotify, Pandora, Rhapsody, Grooveshark, etc, offer great variety and flexibility and are good substitutes for radio in an era when radio sucks, but they are no replacement for a serious music collection. A lot of people can’t hear the difference between streaming and CD or vinyl, and that’s fine, but it’s really not the same product.
Digital, if you want to really listen with good speakers or headphones, sounds best as CD or lossless formats like FLAC. If you really love an artist and want some collection for future listening under any conditions that’s probably the best way to go– and for portability, you can generate all sorts of compressed formats from your CD rips or FLAC files without losing the quality at the source.
I listen to a lot of online music while I’m working, and the ability to explore new things through streaming services is great, but I’d never consider mp3s something to collect. It may all sound the same through earbuds or computer speakers, but even in my car stereo mp3s will sound poorly compared to a CD. And if you want something that looks good, vinyl covers are beautiful.
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This issue has been on my mind a LOT lately. I’ve been renting for the last 2+ years, and learned I have to move. The landlady’s daughter is moving back to town and she needs a home (don’t anyone get bent out of shape, it was a no contract situation with long-time friends–and I did get 30 days notice. No harm, no foul.)
Before this, I’ve not wanted to own a home. The responsibility, the lack of freedom, the expense and time of maintenance–basically all the ways a home can cost kept me very wary. And I’m still wary. But if I own my home, the chances of being asked to vacate drop significantly.
It’s been a stressful few weeks trying to find a new place, and my price range has netted only dumps, tiny homes, or both. I see more benefit to home ownership than I did before, so it’s back on the table for future consideration.
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Just a reminder to anyone with modest means looking for housing–look for HUD-housing counselors in your area (U.S.) You may qualify for down payment help, affordable rental units, and more from local nonprofits.
There are so many options out there so many people never explore.
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Thank you for encouraging us to consider the benefits of renting versus owning.
There are times when renting really does make sense. My past rental items have included carpet cleaners, table cloths for special family events, and formal clothes for weddings.
Sometimes we have dreams which will not go away. We might want to try fishing and we buy a small boat and motor. Or we buy a vintage car to “fix.”
My husband and I are now paying a monthly fee for a storage locker. Open the door and you will see our 1967 Ford Mustang and our older, but still serviceable fishing boat.
We own these items, but we don’t use them. They collect dust. Yearly rental fees far exceed the pleasure we might gain by using them.
I think storage should be added to the list of renting advantages.
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I’m taking advantage of a great rental opportunity this year.
At middle age, I’ve decided to learn sailing for the first time. I’ve joined a community sailing program (heavily subsidized by the local university) that allows me to join for $500 a season, get 3 hours of free lessons, borrow a boat whenever I want, and take friends along!
My favorite boat is a 26 footer that would probably cost me $20,000 to buy used. Plus I’d have to find a place to moor it, pay to have it taken out of the water each winter, or buy a trailer and truck big enough to haul it around.
It would take me more than 40 years of membership fees to make owning better than renting.
One of the smartest rental decisions I ever made.
BTW, as a housing counselor who has a conniption every time someone talks about “throwing money away on rent,” I’m thrilled to see so many comments that really understand that you’re getting value for your money when you rent even if you don’t end up owning the building. Hooray!
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I own a kayak that I bought for ~$400 from a friend. It is a nice kayak, and I enjoy using it. But I only use it perhaps 2-3 times a year. I might not rent a kayak the same number of times, but I definitely could. There’s a definite part of me that wishes I had held off on buying and had instead rented when I wanted one.
The best time for me, kayaking, was actually when I taught at a boating summer camp and was able to use their kayaks and canoes for free all summer long. That’s ideal. They also had a pass for $300 a year for unlimited boat rentals (and this was an in-city boating marine and summer camp). Not as good of a deal as the sailing club, but still pretty good considering you don’t have to store your boat, haul it, or anything else. They also gave you free transportation back up the river to your car, so it’s win-win all around. If I still lived in that city, I’d totally be buying the yearly pass instead of owning a boat.
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Rent a Balenciaga handbag? Over my wife’s dead body…
I’ll tell you one area it’s best to rent over own: real estate, when your career is still up in the air.
I can’t tell you how many people I know who bought a house — because they thought they could and should — and now are caught in a stagnant economy where the opportunities are thousands of miles away from their houses. But they won’t move because they have a house.
Sell it already and follow your career!
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I love PaperBackSwap for books. If you havent heard of it, it is a book swapping site and also includes audio books on CD/tape and hardback books. They also have a sister site set up for CD/DVDs. Its free, you only pay media mail rate to ship a book to someone.
http://www.paperbackswap.com/index.php
I have been a member for a few years now and it has completely changed how I acquire my books. Then I can swap that book out to someone else when I am done!
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We learned the hard way it can be more expensive to rent. When putting down our hardwood floors we rented a nail gun. When we added up the costs, it would have been cheaper to have purchased the nail gun and resold later. Even if we didn’t resell, it would have been cheaper to purchase the nail gun.
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It’s all about the depreciation characteristics of the object and how it’s priced. Technology depreciates so quickly that a rental model might work better than buying. For instance, perhaps it would have been more cost-efficient for early adopters to lease/rent items like iPads, iPhones, etc., knowing they’d continue to buy new versions every 1-2 years. Conversely, a car? Makes total sense to buy over lease given how expensive leasing is.
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K nothing personal against the writer, but I’m sick of reading for the past 3-4 years EVERYWHERE and not just GRS, of why renting is better than buying. I’m sick of it.
When the market gets better, writers will start saying oh its better to buy now. Seriously. I’m sick of reading why renting is wiser all the time. It’s driving me nuts!
Why can’t we have some articles of why owning is better?!
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When the market gets better, the decision to rent or buy will be different. This article isn’t about how “Renting is better than buying. Period.” It’s about how sometimes it makes more sense to rent. And whether it drives you nuts or not, sometimes it makes more sense to rent.
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I admit I went a little crazy on my comment. I’m sorry for going overboard. Yes depending on the case it does make sense to rent sometimes.
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I won very little. I change countries for work reasons and my life weighs exactly 242 pounds. Most of it junk and books. Except this laptop I’m using right now. At the end of the day I thnk renting or buying has little to do with rational financial reasons for a lot of people. It’s mostly an emotional thing. I rent stuff I don’t care about because I know I will get emotionally attached to a certain thing.
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I think the premise of this article is good, but I think Sierra used the word “want” a little too much for my comfort. Sure if you want up to date fashion and want up to date cars and have new thneeds all the time renting can be an affordable way to indulge your tastes. And ultimately I don’t have a problem with that except as people use it to fool themselves about the true costs of their decisions, as in: I’m making a frugal decision to rent when I replace my ______ every X years/months, when the reality is if I bought it and didn’t replace it I would save even more money.
I’m totally on board with renting things you’ll only need once or for special occasions, but part of frugal decisions is making due with what you have, not finding the cheapest version of everything you want.
And as an aside, I would suggest a little research before renting power tools for larger jobs. The assumption is that renting is cheaper but once you use it for >2 days it’s often cheaper to buy something and re-sell it. If you can find a quality used product and resell you can often do so at a fraction of the rental cost, you simply run the risk of breaking it and losing your whole investment.
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I have checked into a week’s cost to rent an engine stand, hoist and transmission jack. It is cheaper to buy the items new then rent for a week. If one doesn’t want to store them they can sell them. Shop discount tool stores they have inexpensive tools and one can even buy coupons people are sellling on ebay to knock the price down.
A house is worth it if it is paid off. The cost of the property tax and maintenance over the year is usually way cheaper than the monthly rent. But one has to get to the paid off status first.
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Great post I loved reading it and it makes me feel better about renting an apartment.
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I admit it is judgmental an often not true when people say renting is like throwing away money. And it’s also not good to assume that a mortgage (including taxes and insurance) is cheaper than renting….even in the same area.
It all depends on how much you have to put down. A larger down payment NOW and lower mortgage, therefore lower taxes and possibly the ability to pay the house off sooner if that is a priority because of the lower payments.
I’m the type of person where I like to make my major purchases as early as possible. I get that investing in a house is a gamble, just like investing in the market is a gamble, but I liked the idea of being able to enjoy my investment, even if it didn’t pay off big, or at all. Though, I tried to make decisions that would better guarantee it to pay off…it wasn’t a 100% emotional purchase.
With the exception of DVDs (because I don’t really watch the same movie over and over again) I like to purchase items and keep them long-term. I’ll buy a sturdy-framed chair and will probably have it reupholstered in 15 years instead of buying a chair over and over again (my grandparents did/do this and they are very frugal).
I began buying pricey, yet quality furniture in my early 20′s that I’ve had for 5 years and plan on keeping indefinitely. My tastes have always been in the same vein and I buy classically simple items so I’m not worried that they won’t fit me in the future.
I’m not the type of person that gets bored with things…at least not with things like where I live, car I drive, and other high cost items.
In my opinion a house should not be bought to make money. It should be used as a means to budget and plan for life events such as retirement, or because you want to be a homeowner and take pleasure in the things that might be a nuisance for someone that’s not up to it. Buying a house is only benefitial if you want to buy a house…because it can go either way and you’ve gotta be happy with your decision.
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My local library system has a tool lending library – super awesome!
One thing that is neglected when people talk about renting: I understand that I’m helping pay for property taxes/mortgage, but my building owner bought the property 20+ years ago when it was WAY cheaper than it would be now.
If I were to buy my exact same space in my exact same neighborhood, my monthly costs would be double (never mind the massively increased responsibility). If I could buy something nearly as great in nearly as good a location for my same low price (all in, including PITI) I’d be on it in a heartbeat.
In the meantime, I’ll keep saving aggressively for retirement while I’m young(ish). I figure if nothing else I can buy on a 15-year mortgage when I’m 50 – by then it won’t matter so much if I’m saving for retirement, because I’ll have gotten a huge head start.
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Regarding comments I’ve heard about the “lack of freedom” in homeowning I have to giggle. Homeowning can be as flexible as you want it to be nowadays. If you wanted to move somewhere else for a few years, or go abroad, you can rent it out and hire a mangamenet firm.
My rent estimate for my house is almost twice what my total monthly payment is. I have it worked out with my sister and brother in law that if ever I should want to take an extended stay abroad or live in a different part of the country they would manage it. As long as my taxes, insurance and mortgage gets paid, they can keep the profit (of course they’ll need to budget some of that profit for repairs and such, but my BIL is very handy). I know that I am lucky in this case, but even with using a management firm if you put enough down to have a small mortgage, even if you don’t make money from renting, you can often cover at least the cost of the mortgage, taxes and insurance, plus maintenance.
There is also house-swapping now as well. You can always sell, yes there is a cost involved so I would not sell unless it will pay off in some way for me. Or ***gasp*** you can travel. I love traveling and I love extended stays in other places, but I’m also that the type of person that loves having a home-base. I don’t feel the need to live in tons of different cities and areas. Everything will eventually become the same, the mundane. I’d rather visit these places for a month at a time and get a blast of excitement. If I didn’t see or do everything I wanted, I go back. Having a low house payment, and a small house (less utility payments…many apartments are larger than my house) I can afford to do more things.
Personally I felt less freedom in the apartments and houses I’ve rented. You can’t have pets, if you can you could end up paying dearly for them (in deposits and extra monthly cost). In my area many of the places that offer pets only offer them in their crappiest apartments or properties. If you’re in apartments noise control is an issue. If you are in a rented house or apartment there can be inspections done (whether you’re home or not) if you don’t renew your lease you deal with a barrage of interested looksee-ers checking out the unit or house…yes you do this when you sell a house but it’s because you’re trying to get something out of it. You could get kicked out with 30 days notice…which is not enough time for me. You can’t control how quickly things get fixed or how they get fixed, or what something is replaced with. Often times you can’t paint or customize in permanent or semi-permanen ways. BOTH sides of so many cons and pros it’s pointless to argue which is better. It depends 100% on the individual and where their tolerances lie.
For me buying a house was a no-brainer. I plan on being in this are for a minimum of 10 more years if not forever. It’s close to where I grew up and my family is here. I don’t have family anywhere else in America and being close to my family is what makes me happy…happier than living in a place with more to do, though my city doesn’t do too bad so I’m sure that helps the way I feel about living here. If I get bored I scoop up my homeowners cash (muuhahaha! kidding) and travel.
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I may be reposting. I didn’t have a chance to read all the posts, but one big issue I have with this article is that HOUSES DO NOT APPRECIATE. The land appreciates, the home does not appreciate. Hopefully, the land appreciates more the house depreciates. Rant over.
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I may have missed it somewhere in the posts, but I didn’t see anyone mention the single biggest advantage I have experienced since selling my house earlier this year and moving into a rental house – more free time!
I no longer spend my weekends (or disposable income) doing maintenance and improvements on the house. If something breaks, I call the landlord and they send a handyman. Our weekends are now spent doing what we want to do – not maintaining a yard and house.
I did not save much money by converting to renting. My rent is only a few hundred dollars less than I spent on principal, interest, taxes, and insurance plus repairs, maintenance, and upgrades. Actually, that makes perfect sense if you think about it… since I determined my rent budget based on what I found I could afford when I owned a house.
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My view of renting has change significantly with the downturn in the housing market. I do prefer owning, however I understand when renting makes sense. I think if you are moving to a new city for a new job or for family purposes, renting is more than likely your best option. Why get tied down so early, give it a year or two. The same with major life changes (baby, marriage, etc). I remain firm that long term, renting is not the way to go though. Money down the drain. The market will not be down forever.
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Renting makes sense and buying makes sense — to different people for different reasons — and definitely at different turns in economic cycles. thru all the years i lived, i have been pretty damned sharp with the buckeroos. never borrowed one penny nor lent. big ben franklin fan; took him most seriously.
however, right after 9/11, i became concerned and led to purchase a condo. it was evident, altho beautiful and at a killer good price, that i did not want to own. within 2 years i sold it for twice what i paid for it. went back to renting and never looked back, except to buy and sell a used mobile home for the same price i paid for — after two years of living for the price of lot rent and utilities.
i now am in the most wonderful situation i’ve ever had. beautiful apartment complex. perfect year-round weather, walkable to everything. bus to my doorstep. with no car, i save an approximate $20k per year. that more than pays my rent and groceries.
americans just haven’t figured it out. look at old photos and old movies if you want an idea of what people looked like when we walked. trim, healthy.
automation has just done wonders to create emissions, laziness, high costs, worries, anxieties and obesity. simplify, folks. rent and WALK. if the economy gets to the point of one where you can buy/dump a place quickly like i did, buy. then dump. and rent.
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Emma- Do you mind telling me where you live? It sounds like the place I am looking for. I’m at tdullmaier at yahoo dot come. Thanks.
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